KUALA LUMPUR: Gold is expected to remain volatile over the coming months, with any deeper correction likely to present buying opportunities for long-term investors rather than signalling the end of the spectacular bull market.
Gold’s recent correction is unlikely to mark the end of its long-term rally, with economists saying the precious metal’s underlying investment case remains intact despite short-term headwinds from a stronger US dollar, elevated real interest rates and expectations that the US Federal Reserve (Fed) will keep monetary policy restrictive.
The precious metal rose more than 1% on Friday but still recorded its fourth consecutive weekly decline, as markets continued to reassess expectations for US monetary policy.
While softer inflation data provided some support, expectations that the US Federal Reserve will keep interest rates higher for longer continued to weigh on investor sentiment.
Economists said the recent pullback should be viewed as a healthy consolidation following an extraordinary multiyear rally rather than the beginning of a structural bear market.
BIMB Securities chief economist Imran Nurginias Ibrahim said the near-term outlook for gold has become more challenging as improving global risk sentiment, easing geopolitical tensions, firmer real interest rates and a more hawkish-than-expected Federal Reserve have reduced demand for traditional safe-haven assets.
“These developments have triggered a healthy correction after an exceptionally strong rally,“ he told SunBiz.
However, Imran stressed that the longer-term investment case for gold remains broadly intact, underpinned by continued central bank diversification away from the US dollar, persistent geopolitical uncertainty and gold’s role as a hedge against macroeconomic and financial risks.
“The recent decline should therefore be viewed more as a consolidation following a multi-year bull run rather than a decisive reversal of the long-term trend,“ he said.
Imran noted that although technical indicators suggest further downside risks remain if prices break below key support levels, the structural fundamentals supporting gold have not materially changed.
IPPFA Sdn Bhd investment strategy director and country economist Mohd Sedek Jantan shared a similarly constructive long-term outlook, describing the almost 20% retreat from gold’s recent peak as a tactical reset driven by changing monetary policy expectations rather than a deterioration in the precious metal’s underlying fundamentals.
“The long-term bullish thesis for gold remains intact, although the macro environment now calls for greater tactical caution,“ he said.
Sedek explained that the recent weakness reflects cyclical macroeconomic headwinds rather than structural changes in demand.
Markets have repriced expectations for US monetary policy following resilient economic data, resulting in higher real interest rates and a stronger US dollar. This has increased the opportunity cost of holding non-yielding assets such as gold, prompting investors to lock in profits after its remarkable rally over the past two years.
“After such a strong run-up, profit-taking was inevitable, particularly as investors reassess the timing and magnitude of future Federal Reserve rate cuts,“ Sedek said.
Nevertheless, he opined that the long-term structural drivers supporting gold remain firmly in place.
Sedek pointed to sustained central bank purchases as countries continue to diversify reserve assets, while geopolitical tensions, widening fiscal deficits, expanding sovereign debt, and the gradual fragmentation of the global economic order continue to reinforce demand for safe-haven assets.
“These are long-duration themes that are unlikely to disappear simply because the interest-rate cycle has shifted over the next few quarters,“ he added.
Sedek said investors should distinguish between temporary cyclical pressures and long-term structural demand.
While cyclical factors such as higher interest rates, elevated Treasury yields, a stronger US dollar and shifting expectations surrounding Fed policy are likely to keep gold prices volatile in the near term, they do not diminish gold’s strategic role as a portfolio diversifier and hedge against geopolitical shocks, policy uncertainty and long-term inflation risks.
“The market is undergoing a tactical reset, not a fundamental reassessment of gold’s strategic role in portfolios,“ Sedek said.
Welbeck & Bradwell Asia partner and lifestyle economist Lalua Rahsiad said the recent weakness also reflects institutional investors rotating into yield-bearing assets as higher interest rates have made bonds and other income-generating investments more attractive than gold.
“Institutional investors are reallocating funds to assets that offer returns, while gold relies primarily on capital appreciation. That’s one reason some investors have shifted money away from gold in the near term,“ she told SunBiz.
Lalua said such portfolio shifts are typical during periods of changing monetary policy and should not be interpreted as a loss of confidence in gold’s longer-term appeal.
She expects gold prices to recover gradually as central-bank demand continues to provide underlying support and investors regain confidence in the precious metal’s long-term value.
While she believes gold could move back towards the US$5,000-per-ounce level over time, she said investor demand is likely to return gradually rather than all at once.
“Investors tend to wait for clearer signs that prices have stabilised before re-entering the market. Once confidence returns, buying activity typically gathers momentum,“ she said.
The economists said the key drivers of gold prices over the coming months will remain US monetary policy, real interest rates and movements in the US dollar.
Should inflation moderate further and the Fed eventually begin easing monetary policy, gold could regain upward momentum as lower interest rates reduce the opportunity cost of holding the non-yielding asset and typically weaken the US dollar.
However, if the US economy remains resilient and policymakers maintain a higher-for-longer interest rate stance, gold could remain under pressure despite its strong long-term fundamentals.
Investors will also monitor central bank gold purchases, geopolitical developments and global macroeconomic conditions to assess whether structural demand remains strong enough to offset weaker investment flows in the near term.
Despite the recent correction, economists maintain that gold continues to play an important role in diversified investment portfolios, suggesting any deeper price declines may be viewed by long-term investors as opportunities to accumulate.
According to a recent World Gold Council (WGC) research, structural demand for gold remains resilient despite the recent price correction.
The WGC said central banks purchased a net 244 tonnes of gold in the first quarter of 2026, while investment demand remained resilient despite higher prices weighing on global jewellery consumption.
The WGC’s latest Central Bank Gold Reserves Survey also underscored the strength of official-sector demand. It found that 89% of respondents expect global central-bank gold reserves to increase over the next 12 months, while a record 45% expect their own institutions to add to gold holdings, reflecting continued diversification away from the US dollar.
At the same time, the council noted that gold-backed exchange-traded fund (ETF) flows have softened as investors adjusted expectations for US interest rates, highlighting the contrasting roles of short-term investment flows and long-term central bank purchases in the gold market.
